Luong vs. Circuit City Stores
For Purposes of Determining Diversity Jurisdiction in Vacature Action, the Dollar Threshold Is the Amount of the Award, not the Amount Claimed in the Underlying Controversy
LUONG v. CIRCUIT CITY STORES, INC., No. 02-56522 (9th Cir., 1/30/04).
May a federal court hear a vacatur petition concerning a zero-dollar Arbitration Award? The answer, for the most part, is no, according to this recent Ninth Circuit Opinion, meaning that most Claimants will be unable to look to federal court review when they lose in arbitration.
Mr. Luong initiated the underlying dispute by suing in federal court, alleging disability discrimination and damages exceeding $75,000. When the trial court granted Circuit Citys petition for an order compelling arbitration, it also dismissed the action, instead of staying the litigation or retaining jurisdiction to review the Award.
The Court relies upon this dismissal as closing the original suit and severing the jurisdictional tie with the case. The vacatur proceeding must stand on its own jurisdictional feet. Thus, it is immaterial that the district court had jurisdiction to compel arbitration. Those jurisdictional feet must be planted in either diversity or federal question jurisdiction. Diversity of citizenship exists, but jurisdiction on diversity grounds depends, too, upon whether the amount in controversy in the vacatur proceeding refers to Mr. Luongs six-figure claim for damages or the zero-dollar Award amount.
On that point, the Court holds that the better rule is that the matter in controversy on a petition to vacate an arbitration award should be measured by the amount of the award.
Appellant also claimed jurisdiction on the basis of a federal question, because he challenges the Award for manifest disregard of federal law. The federal law is the American with Disabilities Act, but the challenge, the Court finds in parsing the petition, relates to the Arbitrators allegedly erroneous reading of a controlling U.S. Supreme Court case. The Arbitrator may have misread the case law, the Court observes, but it is clear that the arbitrator did not ignore it.There can be no manifest disregard without that.
Accordingly, no substantial federal question is at issue in the vacatur motion and the District Court properly ruled. (ed: Just how a federal court ends a case procedurally, once it relegates the claims to arbitration, has tactical significance. On the one hand, it impacts the immediate appealability of the order compelling arbitration. (See, Green Tree v. Randolph, SLA 2000-41, where a dismissal order in an embedded proceeding was held to be a final (immediately appealable) judgment.) On the other hand, if a stay of arbitration would have allowed Mr. Luong to return to federal court with his challenge, the disposition may also have impacted his post-Award options.) (SAC Ref. No. 2004-05-04)
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